Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Aflac in Focus
Aflac (AFL) is headquartered in Columbus, and is in the Finance sector. The stock has seen a price change of -5.18% since the start of the year. The insurer is currently shelling out a dividend of $0.42 per share, with a dividend yield of 2.46%. This compares to the Insurance - Accident and Health industry's yield of 2.56% and the S&P 500's yield of 1.73%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.68 is up 5% from last year. Over the last 5 years, Aflac has increased its dividend 5 times on a year-over-year basis for an average annual increase of 11.72%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, Aflac's payout ratio is 30%, which means it paid out 30% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for AFL for this fiscal year. The Zacks Consensus Estimate for 2023 is $5.81 per share, representing a year-over-year earnings growth rate of 9.01%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. However, not all companies offer a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, AFL is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).
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